Question
Consider the following bond quotations taken on Mar 14, 2022 : Maturity Coupon Bid Price Asked Price Yield to maturity Duration Val01 8/15/2041 1.750% 87.076
Consider the following bond quotations taken on Mar 14, 2022:
| Maturity | Coupon | Bid Price | Asked Price | Yield to maturity | Duration | Val01 |
| 8/15/2041 | 1.750% | 87.076 | 87.096 | |||
| 5/15/2041 | 3.750% | 110.216 | 110.236 |
- What is your intuition about the different coupon rates of the bonds?
- What are the Yields to maturities (using the asked price) of the bonds?
- What are the Val01 of the bonds?
- Is there an arbitrage opportunity?
- What is the required transaction to exploit the arbitrage opportunity? Specify the details of the transaction.
- How much would you make on $10m face value on these bonds?
- What are the risks involved in the strategy?
Important - Note
For Risk-free rate Rf use the Yield (using the asked price) of the following 10-year bond (price as of Mar 14, 2022, this is the settlement date):
| maturity | Coupon | Bid Price | Asked Price | Yield to Maturity |
| 2/15/2032 | 1.875 | 97.196 | 97.206 |
- Assume that market risk premium (Rm Rf) = 6%
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Stock Market Investing For Beginners Your Step By Step Guide To Building Wealth And Passive Income Streams Using Proven Stock Market Strategies
Authors: Michael Ezeanaka
1st Edition
1096335387
